Monday, May 11, 2009
question 1-4
Question 01
During the time 1965 until early 1980s Analog Devices grew at a rate of 27% percent a year. In 1983 Ray Stat recognised that ADI was having a problem with the quality of their products. The major issues they faced were the onetime delivery and process yields. The customers were complaining about the quality of products and their competitors had on time delivery records and yields above their company level. This was the ADI’s first introduction to total quality management.
By the end of 1984 and the end of 1986 the sales of the company have grown only 6.7% and the profits had fallen by 38%. They were affected by the depression in the US electrical industry and by the strong dollar. Only 15% of every 100 ICs that ADI started made it through the process. Certainly there was a problem of the quality management of the company. So ADI hired Art Schneiderman to sort out this issue. He brought the “half Life” strategy to the company. This means any fault levels subjected to any reasonable QIP decreases at a constant rate. Every process could experience a 50% reduction in faults at a consistent time interval. The teams need to identify the main causes of the faults, rank them in order of importance then propose, design, test and implement solutions using the Plan-Do- Check-Act or PDCA cycle.
What is Plan-Do-Check-Act
Here is what you do for each stage of the Cycle:
Plan to improve your operations first by finding out what things are going wrong (that is identify the problems faced), and come up with ideas for solving these problems.
Do changes designed to solve the problems on a small or experimental scale first. This minimises disruption to routine activity while testing whether the changes will work or not.
Check whether the small scale or experimental changes are achieving the desired result or not. Also, continuously Check nominated key activities (regardless of any experimentation going on) to ensure that you know what the quality of the output is at all times to identify any new problems when they crop up.
Act to implement changes on a larger scale if the experiment is successful. This means making the changes a routine part of your activity. Also Act to involve other persons (other departments, suppliers, or customers) affected by the changes and whose cooperation you need to implement them on a larger scale, or those who may simply benefit from what you have learned (you may, of course, already have involved these people in the Do or trial stage).
This is now completed the cycle to arrive at `problem solved. Go back to the Plan stage to identify the next `problem faced'.
If the experiment was not successful, skip the Act stage and go back to the Plan stage to come up with some new ideas for solving the problem and go through the cycle again. Plan-Do-Check-Act describes the overall stages of improvement activity.
Schneiderman used five year plan as a tool to improve the quality of the performances. In this he has used the critical success factors which are on time delivery, outgoing defect level and lead time as External factors and Manufacturing cycle time, process defect level, yield and time to market as Internal factors. He has proposed the reduction such as dropping process defect level from 5000PPM in 1987 to fewer than 10PPM by 1992.
2. What is Half-Life Concept?
The half life matrix summarizes the expected half-life when an improvement team utilizes best practice incremental improvement tools and methods. The half-life is not the same for all processes. Instead, it depends on the complexity of the process. There are two dimensions to complexity: technical and organizational.
What are advantages and disadvantages of that?
Half-life starts identifying the root causes of defects, rank them in order of importance, then propose, design, test and implement solutions using the Plan-Do-Check-Act. The team continues to cycle around this learning loop until the root causes of most of the faults are corrected and then move on to the next most important causes of defects. It gives the measurements of the non-financial performances and also states the realistic objectives of the company and gives a realistic measurement of the performances
Difference between half life and experience curve concept.
The experience curve states total units produced from the very beginning, not just this year, real unit cost drops by a constant percent, for example 20%. If the first million units cost $10 each, then the next million units should cost $8 each, the next two million units, $6.40, the next four million units, $5.12, etc. Because cost is driven by cumulative units produced (1+1+2+4 million in our example), the rate of decline of cost drops over time unless unit volume grows at a sufficiently high exponential rate
The half-live method, on the other hand, predicts that the rate of decline of defect level is constant over time
Half-life deals with defects not cost.
Less complex process the root causes is often larger and the improvement cycle time is shorter. For more complex process the root cause is smaller while the improvement cycle time is longer.
The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance.
The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system.. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies.
The balanced scorecard suggests to view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:
They are
1. financial-how should the company appear to their shareholders
2 Internal Business processes- to satisfy our shareholders and customers, what business process we should excel at?
3. Learning and growth- to achieve our vision how will we sustain our ability to change and improve?
4. Customers-to achieve our vision how should we appear to our customers?
In this company the score card has only three parts. They have divisional score cards and it over laps with the overall scorecard. The company has allowed the divisions to use the same score card or unique ones. If this is the case there is a chance that the divisional managers could come up with their own strategies when creating their own score cards and it might not with the overall company’s objectives. It would be better if the company has just one score card as their vision statement and each and division follows the steps in the overall card.
There is no indication about employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people the only repository of knowledge are the main resource. What about the customer satisfaction. It is not indicated on the scorecard. customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.
During the time 1965 until early 1980s Analog Devices grew at a rate of 27% percent a year. In 1983 Ray Stat recognised that ADI was having a problem with the quality of their products. The major issues they faced were the onetime delivery and process yields. The customers were complaining about the quality of products and their competitors had on time delivery records and yields above their company level. This was the ADI’s first introduction to total quality management.
By the end of 1984 and the end of 1986 the sales of the company have grown only 6.7% and the profits had fallen by 38%. They were affected by the depression in the US electrical industry and by the strong dollar. Only 15% of every 100 ICs that ADI started made it through the process. Certainly there was a problem of the quality management of the company. So ADI hired Art Schneiderman to sort out this issue. He brought the “half Life” strategy to the company. This means any fault levels subjected to any reasonable QIP decreases at a constant rate. Every process could experience a 50% reduction in faults at a consistent time interval. The teams need to identify the main causes of the faults, rank them in order of importance then propose, design, test and implement solutions using the Plan-Do- Check-Act or PDCA cycle.
What is Plan-Do-Check-Act
Here is what you do for each stage of the Cycle:
Plan to improve your operations first by finding out what things are going wrong (that is identify the problems faced), and come up with ideas for solving these problems.
Do changes designed to solve the problems on a small or experimental scale first. This minimises disruption to routine activity while testing whether the changes will work or not.
Check whether the small scale or experimental changes are achieving the desired result or not. Also, continuously Check nominated key activities (regardless of any experimentation going on) to ensure that you know what the quality of the output is at all times to identify any new problems when they crop up.
Act to implement changes on a larger scale if the experiment is successful. This means making the changes a routine part of your activity. Also Act to involve other persons (other departments, suppliers, or customers) affected by the changes and whose cooperation you need to implement them on a larger scale, or those who may simply benefit from what you have learned (you may, of course, already have involved these people in the Do or trial stage).
This is now completed the cycle to arrive at `problem solved. Go back to the Plan stage to identify the next `problem faced'.
If the experiment was not successful, skip the Act stage and go back to the Plan stage to come up with some new ideas for solving the problem and go through the cycle again. Plan-Do-Check-Act describes the overall stages of improvement activity.
Schneiderman used five year plan as a tool to improve the quality of the performances. In this he has used the critical success factors which are on time delivery, outgoing defect level and lead time as External factors and Manufacturing cycle time, process defect level, yield and time to market as Internal factors. He has proposed the reduction such as dropping process defect level from 5000PPM in 1987 to fewer than 10PPM by 1992.
2. What is Half-Life Concept?
The half life matrix summarizes the expected half-life when an improvement team utilizes best practice incremental improvement tools and methods. The half-life is not the same for all processes. Instead, it depends on the complexity of the process. There are two dimensions to complexity: technical and organizational.
What are advantages and disadvantages of that?
Half-life starts identifying the root causes of defects, rank them in order of importance, then propose, design, test and implement solutions using the Plan-Do-Check-Act. The team continues to cycle around this learning loop until the root causes of most of the faults are corrected and then move on to the next most important causes of defects. It gives the measurements of the non-financial performances and also states the realistic objectives of the company and gives a realistic measurement of the performances
Difference between half life and experience curve concept.
The experience curve states total units produced from the very beginning, not just this year, real unit cost drops by a constant percent, for example 20%. If the first million units cost $10 each, then the next million units should cost $8 each, the next two million units, $6.40, the next four million units, $5.12, etc. Because cost is driven by cumulative units produced (1+1+2+4 million in our example), the rate of decline of cost drops over time unless unit volume grows at a sufficiently high exponential rate
The half-live method, on the other hand, predicts that the rate of decline of defect level is constant over time
Half-life deals with defects not cost.
Less complex process the root causes is often larger and the improvement cycle time is shorter. For more complex process the root cause is smaller while the improvement cycle time is longer.
3. Conflict exists between the QIP measures and the measures reported by the financial system.
Continuous Quality Improvement is a key component of our corporate culture. process begins with a wide variety of annual “Inputs”, the reality is that quality services depend upon this process happening every day, not once a year. The process of “Input” → “Identify Need” → “Improvement Plan” → “Monitor Outcomes” → back to “Input” is part of every staff meeting, management meeting, team meeting, In many cases ongoing situations are identified quickly and ideas for improvement are sought for immediate implementation. This redefined process includes capturing the ongoing improvements that are identified and addressed successfully outside of the annual PLAN review and preparation. At no time will we detour from the informal, on-going improvement processes; rather, we are establishing this annual process as a way to capture the bigger issues and needs at sites and for the total agency.
Financial system
The financial system concentrates on short term results and can be manipulated by the managers. For instance managers can manipulate the figures when calculating the current ratios, bad debts and doubtful debts etc.. There could be difficulties to compare some areas in the balance sheet from year from year to year,
The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance.
The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system.. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies.
The balanced scorecard suggests to view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:
They are
1. financial-how should the company appear to their shareholders
2 Internal Business processes- to satisfy our shareholders and customers, what business process we should excel at?
3. Learning and growth- to achieve our vision how will we sustain our ability to change and improve?
4. Customers-to achieve our vision how should we appear to our customers?
In this company the score card has only three parts. They have divisional score cards and it over laps with the overall scorecard. The company has allowed the divisions to use the same score card or unique ones. If this is the case there is a chance that the divisional managers could come up with their own strategies when creating their own score cards and it might not with the overall company’s objectives. It would be better if the company has just one score card as their vision statement and each and division follows the steps in the overall card.
There is no indication about employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people the only repository of knowledge are the main resource. What about the customer satisfaction. It is not indicated on the scorecard. customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.
Friday, May 8, 2009
Ni Uyen Huynh
This is what I have done so far. Ni Uyen Huynh
Analog Devices’ strategy in the second half of the 1980s: (1985-1990)
In 1983, Ray Stata recognized that ADI was having problems with the quality of its production, so he implemented the concept of total quality management into the company management control system. He hired Schneiderman, an expert in practicing TQM and implemented the “half-life” concept and corporate scorecard into the control system.
The “half-life” concept
Evaluation of the “half-life” concept in light of Analog Devices’ strategy
Before
After
On-time delivery
70%
96%
Cycle time
15 weeks
8 weeks
Average yield
26%
51%
Defects in products
500 PPM
50 PPM
Potential benefits
- Improvements quality of production
- Reducing waste
- Reducing cost per unit
Limitations
It is a cost reduction tool not a wealth creation tool. It has little say about business strategy. It deals with defects, not cost.
How would a company develop the half-life for difference processes?
The half-life is not the same for all processes. It depends on the complexity of the process. The complexity of the process can either be technical or organizational. The basis for the half-life dynamic is the interactive learning loop at the heart of TQM. Half-life starts identifying the root causes of defects, rank them in order of importance, then propose, design, test and implement solutions using the Plan-Do-Check-Act or ‘PDCA’ cycle. For less complex processes, the root cause is often larger and the improvement cycle time shorter, accounting for the shorter half-lives. For more complex processes, there tend to be many more causes so that the root cause is smaller while the improvement cycle time is longer. Organizations should attack less complex processes at the beginning when developing half-live.
Differences between half-life concept and the experience curve concept
Half-life Concept
Experience curve concept
A performance measures tools
As a result of increasing experience or proficiency in doing something
Theoretical basis
No underlying theory
The rate of decline of defects level is constant over time
Real unit cost drops by a constant percent and the rate of decline of cost drops over time
Longer cycle of improvement
Shorter cycle of improvement
The QIP measures and the financial measures
The goals of QIP and the company’s financial goals were in conflict. QIP is more focused on long-term plans while financial measures are more focused on short-term results. Financial measures can be manipulated by manager.
Corporate scorecard:
The usefulness of corporate scorecard:
The corporate scorecard is used as communication tools on how well ADI’s strategies are implemented in the management control system and how ADI is moving toward its goals. The scorecard measured critical success factors as well as financial performance. It provides a link between short-term results with ADI’s long-term plans.
Role of each set of measures playing in strategy execution:
What should be the relative importance of financial versus non-financial measures?
Additional information to be included in the scorecard:
The scorecard should have 4 components. ADI’s scorecard has 3 categories, which are financial, innovation and learning, internal business process. It should include the customer perspective in its scorecard as it is the most important key success factor.
5. Evaluate the evolution of the corporate scorecard and related management planning and control systems at ADI during 1990-1995
6. Compensation philosophy of ADI
ADI did not link incentive compensation to performance on the scorecard measures and compensation was based on stock price for senior management and growth in revenue and operating profits before tax for all other employees. There was no correlation between the non-financial measures and financial results. This can disrupt goal congruence as managers are more concerned about financial measures than any other measures which are not benefits for the company as a whole.
It should link incentive compensation to performance on the scorecard.
7. ADI’s strategy’s in 1996
Analog Devices’ strategy in the second half of the 1980s: (1985-1990)
In 1983, Ray Stata recognized that ADI was having problems with the quality of its production, so he implemented the concept of total quality management into the company management control system. He hired Schneiderman, an expert in practicing TQM and implemented the “half-life” concept and corporate scorecard into the control system.
The “half-life” concept
Evaluation of the “half-life” concept in light of Analog Devices’ strategy
Before
After
On-time delivery
70%
96%
Cycle time
15 weeks
8 weeks
Average yield
26%
51%
Defects in products
500 PPM
50 PPM
Potential benefits
- Improvements quality of production
- Reducing waste
- Reducing cost per unit
Limitations
It is a cost reduction tool not a wealth creation tool. It has little say about business strategy. It deals with defects, not cost.
How would a company develop the half-life for difference processes?
The half-life is not the same for all processes. It depends on the complexity of the process. The complexity of the process can either be technical or organizational. The basis for the half-life dynamic is the interactive learning loop at the heart of TQM. Half-life starts identifying the root causes of defects, rank them in order of importance, then propose, design, test and implement solutions using the Plan-Do-Check-Act or ‘PDCA’ cycle. For less complex processes, the root cause is often larger and the improvement cycle time shorter, accounting for the shorter half-lives. For more complex processes, there tend to be many more causes so that the root cause is smaller while the improvement cycle time is longer. Organizations should attack less complex processes at the beginning when developing half-live.
Differences between half-life concept and the experience curve concept
Half-life Concept
Experience curve concept
A performance measures tools
As a result of increasing experience or proficiency in doing something
Theoretical basis
No underlying theory
The rate of decline of defects level is constant over time
Real unit cost drops by a constant percent and the rate of decline of cost drops over time
Longer cycle of improvement
Shorter cycle of improvement
The QIP measures and the financial measures
The goals of QIP and the company’s financial goals were in conflict. QIP is more focused on long-term plans while financial measures are more focused on short-term results. Financial measures can be manipulated by manager.
Corporate scorecard:
The usefulness of corporate scorecard:
The corporate scorecard is used as communication tools on how well ADI’s strategies are implemented in the management control system and how ADI is moving toward its goals. The scorecard measured critical success factors as well as financial performance. It provides a link between short-term results with ADI’s long-term plans.
Role of each set of measures playing in strategy execution:
What should be the relative importance of financial versus non-financial measures?
Additional information to be included in the scorecard:
The scorecard should have 4 components. ADI’s scorecard has 3 categories, which are financial, innovation and learning, internal business process. It should include the customer perspective in its scorecard as it is the most important key success factor.
5. Evaluate the evolution of the corporate scorecard and related management planning and control systems at ADI during 1990-1995
6. Compensation philosophy of ADI
ADI did not link incentive compensation to performance on the scorecard measures and compensation was based on stock price for senior management and growth in revenue and operating profits before tax for all other employees. There was no correlation between the non-financial measures and financial results. This can disrupt goal congruence as managers are more concerned about financial measures than any other measures which are not benefits for the company as a whole.
It should link incentive compensation to performance on the scorecard.
7. ADI’s strategy’s in 1996
Li Jinmao
Hi everyone, sorry for that i dont have much time to type all my ideas coz i am busy working these days, below are the main ideas for me to share with all you guys, regarding any further discussion we will meet on Sun. sorry but i am really sleepy, and thank everyone for their excellent post you all have prepared so well, i am grateful. and best wishes to our presentation!
1，They established the quality improvement programme(QIP) As ADI called the total quality programme focusing on half life, scorecard, applying the scorecard and analyzing performance and so on. These contribute to the reduce their cost and improve their efficiency which represents the cost leadership.
2，
The linear graph may not be able to present every possible complex variarions
After most of The defects are corrected, then move to the next most important source of defect, in this way the company can reduce most of the source of defects
Linear is easy for someone to see the line indicating the improvement rate.
Experience curve is empirical observation and not based on underlying theory. And the half life curve is focusing on defects not costs.
3，
Both the financial and the QIP numbers should be looked at. They just concentrate on different areas which are important for Analog Devices to make decisions and look at the performances.
the QIP measures combine financial and non-financial measures. financial system only focus on the financial measures, QIP measures promote long-term. financial measures contribute to short-term action
4,
Through the financial data,executives may see whether the business is on the right track in which mainly about revenue
Coming to the new product, company may recognize the situation of the product in the market such as which stage is it in, and whether it is an accepted product or not.
QIP is more about providing the whole company’s performance
Additional:
Customer satisfaction and other field in customer
Learning and growth of the company
5,
changing
customer orientation, wealth creation
6,
Only focusing on the performance regardless of the other factors
7,
Apply the generic strategies into the company’ four field customer satisfaction, new product development, organizational capabilities and financial expectations.
1，They established the quality improvement programme(QIP) As ADI called the total quality programme focusing on half life, scorecard, applying the scorecard and analyzing performance and so on. These contribute to the reduce their cost and improve their efficiency which represents the cost leadership.
2，
The linear graph may not be able to present every possible complex variarions
After most of The defects are corrected, then move to the next most important source of defect, in this way the company can reduce most of the source of defects
Linear is easy for someone to see the line indicating the improvement rate.
Experience curve is empirical observation and not based on underlying theory. And the half life curve is focusing on defects not costs.
3，
Both the financial and the QIP numbers should be looked at. They just concentrate on different areas which are important for Analog Devices to make decisions and look at the performances.
the QIP measures combine financial and non-financial measures. financial system only focus on the financial measures, QIP measures promote long-term. financial measures contribute to short-term action
4,
Through the financial data,executives may see whether the business is on the right track in which mainly about revenue
Coming to the new product, company may recognize the situation of the product in the market such as which stage is it in, and whether it is an accepted product or not.
QIP is more about providing the whole company’s performance
Additional:
Customer satisfaction and other field in customer
Learning and growth of the company
5,
changing
customer orientation, wealth creation
6,
Only focusing on the performance regardless of the other factors
7,
Apply the generic strategies into the company’ four field customer satisfaction, new product development, organizational capabilities and financial expectations.
Notice about Sunday's meeting etc
Sunday meeting:
Time: 1 p.m.
Place: Front of Library
Theme: Discussion of answers and summary, decision about the presentation structure, and allocation of presentation roles
N.B. For those who may not be able to come to the meeting on Sunday, please name a proxy so that you would be fully aware of what is going on with our presentation. They will have a vote to the allocation of the roles, so please make sure the proxy that you appointed know which part you are good at, which will help make your presenting easier and our presentation better.
Acknowledgement:
Thank you for your on-time posting guys, please have a look on other people's answers and summary. Feel free to make comments please.
Sharon Summary
My summary about the case is way too long to be posted on the blog. I've put down notes on my book and I will discuss it through with you guys on Sunday's meeting.
question 6 and 7 charles
6. Do you agree with the compensation philosophy of Analog Devices?
I am quite agreeing with the compensation philosophy of ADI: based on cross-functional coordination and the highest degree of teamwork. Comparing the performance on the scorecard, coordination and high degree teamwork are more important for the development of ADI. It is also more useful to motivate employees to perform.
7. Describe Analog Devices’ strategy as of 1996. How should the corporate scorecard and other management systems change in 1996 to best fit the strategic needs of the company?
In 1996, ADI developed Vision 2000, which set forth three major objectives. And through the Hoshin process, these goals had been translated into specific and measurable objectives for every function of ADI. It also divided the critical measures into four business drives: customer satisfaction, new product development, organizational capabilities, and financial expectations.
I am quite agreeing with the compensation philosophy of ADI: based on cross-functional coordination and the highest degree of teamwork. Comparing the performance on the scorecard, coordination and high degree teamwork are more important for the development of ADI. It is also more useful to motivate employees to perform.
7. Describe Analog Devices’ strategy as of 1996. How should the corporate scorecard and other management systems change in 1996 to best fit the strategic needs of the company?
In 1996, ADI developed Vision 2000, which set forth three major objectives. And through the Hoshin process, these goals had been translated into specific and measurable objectives for every function of ADI. It also divided the critical measures into four business drives: customer satisfaction, new product development, organizational capabilities, and financial expectations.
Sharon Han --Answers to Q5, Q6 & Q7
Q5:
The evolution of the management system is symbolised by the change of executive manager team. Since 1991, they have shifted their product orientation to customer orientation, which is a change in business vision and mission and naturally, brought dramatic changes in its strategies.
a) From cost reduction to wealth creation
Although it may lead to discussion whether by the early 1990s they have completed most cost reduction, the change from TQM to improving firm's profitability is a big leap in its strategies. This shows a strong focus on business growth and the importance of value adding activity. Using lean principle to explain, the cost cutting part is only a small part of work. They also need to trim non-value adding activities, focusing on people that add value to the company, and reduce inventory level. These value-adding and wealth creation activities proves a shift of emphasis from cost leadership to differentiation.
The introduction of Dynamic complexity of processes (exhibit 7) is a set of interlinked non-financial indicators of business performance, which is a way that management used to find ways growing revenue.
b)Focus on the most important objectives
Hoshin system that they deployed instructs the business to focus improvement on one or two breakthrough objectives for the company. It has its pros and cons, which is arguable. I would reckon it is more a neutral factor in the new system., which would be discussed later in the meeting.
c) Improved scorecard
In 1990s, the scorecard comprises key success factors measurements related to the firm's business plan. They are derived from the annually, and sometimes quarterly, changed company's five-year plan, which were more closely related to wealth creation. They have thes key success factors to fill the gap (limitation) of the old scorecard and mortified the evaluation system.
d) using of teams as responsibility centre
For projects, ADI uses teams to complete the task. As teamwork is highly recognised by modern management theory, it is a great method to shorten cycle time and improve efficiency and effectiveness.
f) Compensation system
Compensation system is not linked to non-financial measures, but to stock price. As what get rewarded, what counts. This will discourage people from carrying out progresses in non-financial aspects, but focus on financial performance. This, in turn, will in practice, forfeit the impact of non-financial measurement.
Q6:
I can't agree with the compensation philosophy and the reasons has been partly stated in Q5.
If people are not rewarded by their performance, they will not be motivated to keep doing it. This is based on the rational person theory. What is rewarded, what counts. If they don't link their payment to the non-financial performance, a possible outcome would be the drop in those figures and a disability of increasing them.
Even if people are carrying out the non-financial tasks to increase the critical success factors' figure, when there comes a conflict between financial and non-financial measurement, they would definitely go for financial performance as that is the basis of their payment.
Therefore, this kind of compensation system would have negative effects on non-financial performance.
Recommendation on the current compensation system (see discussion notes of sunday meeting). This should be decided by the whole group.
Q7:
Vision and mission statement in Vision 2000 give us a fair view of what they are doing and what they want to become in the future.
I reckon the objectives that followed should be their strategies. Just summarising their generic strategy:
change from single industry to related diversification
Product differentiation and continue cost leadership
build question marks, hold stars and harvest cash caw (a matrix would be needed to explain this)
organisational growth
Exhibit 8 indicates that a better scorecard is, or at least is going to be, in place. However, in regards to the scorecard, I think some of them is over-detailed.
Question4 and 5 charles
4．Critically assess the usefulness of the information contained in the corporate scorecard in Exhibit 3 as a way to implement Analog Devices’ strategy. What role does each set of measures play in strategy execution? What should be the relative importance of financial versus non-financial measures? What additional information would you like to see include in the scorecard?
As we can see from the Exhibit 3, there are three categories of measures: financial, new product, and QIP. Measures within these categories indicated how well ADI was moving toward its goals.
The financial measures show the revenue, revenue growth, profit and ROA. The new product measures show some customer-focused key variable: the new product introduction, bookings, breakeven, and peak revenue. QIP measures show some key variables related to internal business process：Cycle time, employee productivity.
Financial measures can supply some financial information about budget and accounting system, they often focus on the data, ratio and dollars.
I think some customer-focused key variable could include in the scorecard:
Customer satisfaction: that can be measured by customer surveys.
Customer retention: that can be measured by the lengths of customer relationships.
5. Evaluate the evolution of the corporate scorecard and related management planning and control system at Analog Devices during the period 1990-1995 in light of Analog Devices’ strategy in the first half of the 1990s.
ADI began to use a technique called Hoshin kanri to create wealth. It was an extension of the QIP effort at ADI and a realistic approach to center the company’s energies on wealth creation. It tells ADI to focus on the most important objectives: on-time delivery and new product. So it assumed a prominent place on the ADI scorecard and took a key position on scorecards throughout the firm.
Complementing ADI’s scorecard were measurements called key success factors that measured milestones related to the firm’s business plan. The key success factors were more closely related to wealth creation than the scorecard.
As we can see from the Exhibit 3, there are three categories of measures: financial, new product, and QIP. Measures within these categories indicated how well ADI was moving toward its goals.
The financial measures show the revenue, revenue growth, profit and ROA. The new product measures show some customer-focused key variable: the new product introduction, bookings, breakeven, and peak revenue. QIP measures show some key variables related to internal business process：Cycle time, employee productivity.
Financial measures can supply some financial information about budget and accounting system, they often focus on the data, ratio and dollars.
I think some customer-focused key variable could include in the scorecard:
Customer satisfaction: that can be measured by customer surveys.
Customer retention: that can be measured by the lengths of customer relationships.
5. Evaluate the evolution of the corporate scorecard and related management planning and control system at Analog Devices during the period 1990-1995 in light of Analog Devices’ strategy in the first half of the 1990s.
ADI began to use a technique called Hoshin kanri to create wealth. It was an extension of the QIP effort at ADI and a realistic approach to center the company’s energies on wealth creation. It tells ADI to focus on the most important objectives: on-time delivery and new product. So it assumed a prominent place on the ADI scorecard and took a key position on scorecards throughout the firm.
Complementing ADI’s scorecard were measurements called key success factors that measured milestones related to the firm’s business plan. The key success factors were more closely related to wealth creation than the scorecard.
Question1 and 3 charles
1. What was Analog Devices’ strategy in the second half of the 1980s?
In the second half of the 1980s, ADI implemented the performance measurement systems to make the quality improvement process become a way of life at ADI. The new president Schmeiderman maintained using the half-life of the improvement process and also made goals for a series of quality measures. The goals were determined by combining customer demands with realistic expectation of each measure’s half life. Moreover, Schneiderman advocated using the balanced scorecard to indicate how well ADI was moving toward its goal.
3. Identify the conflicts that exist between the QIP measures and the measures reported by the financial system. Which numbers should we believe? Can they be reconciled?
The reports of financial system just focus on the financial measures, but the QIP measures incorporate both financial and non-financial performance measures. Moreover, using only financial measures may encourage the short-term action and non-challenging performance targets, but QIP measures encourage the long-term and high-risk investment in the future.
In sum, we should measures and evaluate business unit manager using both QIP and financial measures, non-financial as well as financial. Companies should use non-financial measures at lower levels in the organization for task control and financial measures at higher organizational levels for management control. It is important for senior executives to track not only financial measures, but also non-financial measures.
In the second half of the 1980s, ADI implemented the performance measurement systems to make the quality improvement process become a way of life at ADI. The new president Schmeiderman maintained using the half-life of the improvement process and also made goals for a series of quality measures. The goals were determined by combining customer demands with realistic expectation of each measure’s half life. Moreover, Schneiderman advocated using the balanced scorecard to indicate how well ADI was moving toward its goal.
3. Identify the conflicts that exist between the QIP measures and the measures reported by the financial system. Which numbers should we believe? Can they be reconciled?
The reports of financial system just focus on the financial measures, but the QIP measures incorporate both financial and non-financial performance measures. Moreover, using only financial measures may encourage the short-term action and non-challenging performance targets, but QIP measures encourage the long-term and high-risk investment in the future.
In sum, we should measures and evaluate business unit manager using both QIP and financial measures, non-financial as well as financial. Companies should use non-financial measures at lower levels in the organization for task control and financial measures at higher organizational levels for management control. It is important for senior executives to track not only financial measures, but also non-financial measures.
xiaoyan's summary
1986-90
TQM: total quality management
In1983, ADI has problems with the quality of its production. They began to use TQM. TQM ensures customers get the quality they expect and that continuous improvements in business in processes are pursued. By the end of 1984, they were in the fastest-growing in the economy. However, between the end of 1984 and the end of 1986, The ADI's revenues were stagnant and its profitability was declining.
QIP: quality improvement process
At the very start, many managers were skeptical of this new quality program, but the financial basis of ADI's incentive and performance measurements systems reinforced the QIP.
Half-life
Scorecard
The scorecard showed 3 categories: financial, new products, and QIP. They added to it the half-life and target for each of the measurements. They did this to provide a link between short-term results and ADI's long-term plans. They created divisional scorecards and compared the division results. The company used the corporate scorecard as a communication tool.
1990-96
Changing roles
ADI's management changed considerably. The changes reflected ADI's efforts to infuse a different culture. It was the time to begin the era of senior management. New management team.
Changing systems
New performance measures.
Hoshin
A technique called Hoshin kanri for quality management energies on wealth creation
Hoshin tells us to focus on the most important objectives. Hoshin goals
Compensation
did not link incentive compensation to performance on the scorecard measures.
Compensation philosophy is based on cross-functional coordination and the highest degree of teamwork.
1996: technological leadership
TQM: total quality management
In1983, ADI has problems with the quality of its production. They began to use TQM. TQM ensures customers get the quality they expect and that continuous improvements in business in processes are pursued. By the end of 1984, they were in the fastest-growing in the economy. However, between the end of 1984 and the end of 1986, The ADI's revenues were stagnant and its profitability was declining.
QIP: quality improvement process
At the very start, many managers were skeptical of this new quality program, but the financial basis of ADI's incentive and performance measurements systems reinforced the QIP.
Half-life
Scorecard
The scorecard showed 3 categories: financial, new products, and QIP. They added to it the half-life and target for each of the measurements. They did this to provide a link between short-term results and ADI's long-term plans. They created divisional scorecards and compared the division results. The company used the corporate scorecard as a communication tool.
1990-96
Changing roles
ADI's management changed considerably. The changes reflected ADI's efforts to infuse a different culture. It was the time to begin the era of senior management. New management team.
Changing systems
New performance measures.
Hoshin
A technique called Hoshin kanri for quality management energies on wealth creation
Hoshin tells us to focus on the most important objectives. Hoshin goals
Compensation
did not link incentive compensation to performance on the scorecard measures.
Compensation philosophy is based on cross-functional coordination and the highest degree of teamwork.
1996: technological leadership
Xiaoyan, answer of Q4
Q4. EXHIBIT 3 contains 3 categories of measures: FINANCIAL, NEW PRODUCTS, and QIP. One of the company's strategy is cost leadership which is to be the lowest-cost provider in its market. The information contained in the EXHIBIT 3 provides the cost target which should be the lowest we expected. And it provides the actual cost which can measure with the target cost we set. So the information contained in the corporate scorecard in Exhibit 3 is useful as a way to implement Analog Devices' strategy.
The financial measure plays the role of giving the informations about the finance such as revenue, revenue growth, profit and ROA in dollars or ratios. The new products measure provide the information about the introductions, bookings breakeven, and peak revenue of products. QIP plays the role of internal business process.
Financial measures provide information measured in dollars or ratios, use data obtained from the accounting system and it can compare budget and actual results.
Non-financial measures provide performance information that cannot be measured in dollars. It is usually consistent with an entity's long term goals. In addition, it includes the company's ability to build and tap on intangible assets such as customer relationships, innovativeness, knowledge management, and human resources. And also it is often used to help monitor and motivate performance.
Customer, internal business process, learning and growth..
Customer: customer satisfaction, customer retention and profitability, new customer acquisition, and market share in a targeted market.
Internal business process: capacity utilisation, on time delivery, inventory turnover, and cycle time.
Learning and growth: competencies of employees(skills, training, knowledge), information systems(databases, networks), and organisation(culture, knowledge sharing).
I'm not sure about my answers, give me advices everyone, thanksssss.
The financial measure plays the role of giving the informations about the finance such as revenue, revenue growth, profit and ROA in dollars or ratios. The new products measure provide the information about the introductions, bookings breakeven, and peak revenue of products. QIP plays the role of internal business process.
Financial measures provide information measured in dollars or ratios, use data obtained from the accounting system and it can compare budget and actual results.
Non-financial measures provide performance information that cannot be measured in dollars. It is usually consistent with an entity's long term goals. In addition, it includes the company's ability to build and tap on intangible assets such as customer relationships, innovativeness, knowledge management, and human resources. And also it is often used to help monitor and motivate performance.
Customer, internal business process, learning and growth..
Customer: customer satisfaction, customer retention and profitability, new customer acquisition, and market share in a targeted market.
Internal business process: capacity utilisation, on time delivery, inventory turnover, and cycle time.
Learning and growth: competencies of employees(skills, training, knowledge), information systems(databases, networks), and organisation(culture, knowledge sharing).
I'm not sure about my answers, give me advices everyone, thanksssss.
Thursday, May 7, 2009
Sharon Han --Answers to Q1, Q2, Q3 &Q4
Q1:
Cost leadership and differentiation
As they have half-life, QIP (tailored TQM) and PDCA cycle in place to reduce waste level, they are reducing cost per unit, which is targeting at lower its cost, therefore, they are practicing cost-leadership strategy. (see page 479) At the same time, they have goals for high quality product, having innovative new products and being a reliable and responsive supplier, it also make the firm different from its competitors. Therefore, I reckon they have differentiation strategy in place as well. Though, from their action, cost leadership is more of a focus.
Q2:
To define half life concept, it predicts that the rate of decline of defect level is constant over time. In the context of ADI, ist that given any defect level, subjected to legitimate QIP, decreases at a constant rate, so that when plotted on semi-log paper against time, it falls on a straight line. The theory basis for half-life dynamic is the interactive learnign loop at the heart of TQM, which is the PDCA cycle. The rate of decline for defects is not fixed. It depends on the complexity matrix of organisation structure and technical complexity.
As ADI targets on lowering its defect level, half-life method is very a very useful effective target setting tool as it is both measurable and reasonable. It is a visual tool reflecting a business's defect level. Based on different complexity level in different department, different half-life graphs can be drawn and management can compare the actual performance and the estimated goal. They can therefore find out the reason of the variation between them and hence redirect the production activity in time to better reduce the defect level.
However, half-life has its own limitations. First of all, this is a measurement soly on defect rate instead of cost. Therefore, there is a possibility that production department may be reducing defect rate at the expense of higher unit cost. For example, they may consume more time on each individual unit and lower the overall output level. Also, for those products with a long half-life, in-time correction of false-doing may be delayed or neglected and misunderstood as normal fluctuation during the cycle. In addition, as experience curve shows the result of purely empirical observation, it is not always likely that half-life be met and there can be many reasons for that. Therefore, some other supplimentary measurements would be helpful to eliminate the limitation of half-life measurement.
In light of experience curve, it states that for each doubling of cumulative experience (total units produced from the very beginning, not just this year), real unit cost drops by a constant percent, for example 20%. It is different to half-life in ways below:
1) experience curve is a purely empirical observation and is not based on any underlying theory. On the other hand, there is a theoretical basis for the half-life model, which is the interacting learning loop in the centre of TQM system.
2) experience curve deals with cost, while half-lilfe measurement uses defects as its axis. Of course, defects, defined as any gap between current and potential performance, are the principal driver of unit costs, so the two are clearly related. However, a low defect rate doesn't necessarily indicate a lower cost and the ultimate goal of the business for lowering the defect level is to lower cost. Therefore experience curve may be more directly relate to company's goal.
3)Half-life predicts a constant rate of decrease in defect rate, while the Experience curve estimate a dropping rate of decline of cost over time.
Cost leadership and differentiation
As they have half-life, QIP (tailored TQM) and PDCA cycle in place to reduce waste level, they are reducing cost per unit, which is targeting at lower its cost, therefore, they are practicing cost-leadership strategy. (see page 479) At the same time, they have goals for high quality product, having innovative new products and being a reliable and responsive supplier, it also make the firm different from its competitors. Therefore, I reckon they have differentiation strategy in place as well. Though, from their action, cost leadership is more of a focus.
Q2:
To define half life concept, it predicts that the rate of decline of defect level is constant over time. In the context of ADI, ist that given any defect level, subjected to legitimate QIP, decreases at a constant rate, so that when plotted on semi-log paper against time, it falls on a straight line. The theory basis for half-life dynamic is the interactive learnign loop at the heart of TQM, which is the PDCA cycle. The rate of decline for defects is not fixed. It depends on the complexity matrix of organisation structure and technical complexity.
As ADI targets on lowering its defect level, half-life method is very a very useful effective target setting tool as it is both measurable and reasonable. It is a visual tool reflecting a business's defect level. Based on different complexity level in different department, different half-life graphs can be drawn and management can compare the actual performance and the estimated goal. They can therefore find out the reason of the variation between them and hence redirect the production activity in time to better reduce the defect level.
However, half-life has its own limitations. First of all, this is a measurement soly on defect rate instead of cost. Therefore, there is a possibility that production department may be reducing defect rate at the expense of higher unit cost. For example, they may consume more time on each individual unit and lower the overall output level. Also, for those products with a long half-life, in-time correction of false-doing may be delayed or neglected and misunderstood as normal fluctuation during the cycle. In addition, as experience curve shows the result of purely empirical observation, it is not always likely that half-life be met and there can be many reasons for that. Therefore, some other supplimentary measurements would be helpful to eliminate the limitation of half-life measurement.
In light of experience curve, it states that for each doubling of cumulative experience (total units produced from the very beginning, not just this year), real unit cost drops by a constant percent, for example 20%. It is different to half-life in ways below:
1) experience curve is a purely empirical observation and is not based on any underlying theory. On the other hand, there is a theoretical basis for the half-life model, which is the interacting learning loop in the centre of TQM system.
2) experience curve deals with cost, while half-lilfe measurement uses defects as its axis. Of course, defects, defined as any gap between current and potential performance, are the principal driver of unit costs, so the two are clearly related. However, a low defect rate doesn't necessarily indicate a lower cost and the ultimate goal of the business for lowering the defect level is to lower cost. Therefore experience curve may be more directly relate to company's goal.
3)Half-life predicts a constant rate of decrease in defect rate, while the Experience curve estimate a dropping rate of decline of cost over time.
Q3:
The conflicts between the QIP measures and the measures reported by the financial system is the conflict between long term competitive capability and short term profit, and is the conflict between non-financial measurement and finantial measurement. Specifically, it lies in that:
QIP programs may need investment and other expenditure, such as R&D expense, which will reduce profit in the current period.
Improved quality standard means more defect products and this will further reduce the profit on income statement.
Performance measurement system in place were mainly based on financial measurements. Therefore, improvement in quality will not be reflected by these measurement. As staff and executives were paid by their performance measured, they would not put effort on QIP but only focus on short term profit, at the expense of long term compatity.
We should believe both numbers, which represent short term performance and long term growth potential. Neither of them can be overlooked as short term profit provides the firm with a chance to survive and to grow while long term profitability determines if the business could grow and compete in the future. Therefore, a solution has to be found to reconcile the two figures.
To combine the two figures, a balanced scorecard can be introduced, which was what ADI had done later in 1987. A balanced scorecard is an example of a performance measurement system which retains traditional financial measures while incorporate drivers of future performance -- non-financial measurements. (Norton, 1996) The balanced scorecard expands the set of business unit objectives beyond summary financial measures. While retaining an interest in short-term performance by viewing from financial perspective, it captures the critical value-creation acivities and reveals the value drivers for superior long-term financial and competitive performance (Norton, 1996)
Q4:
I reckon the scorecard in Exhibit 3 is an early phased scorecard, which, more appropriately put, is a list of financial and non-financial measurement.
To start with, it has its own positive implications. It is a start of using both financial and non-financial measurement for performance measurement, which indicates that senior managers have started to realise the importance of non-financial factors, or so-called critical success factors. Also, as it integrated new products (learning and groth factor) and QIP (which is internal business process factor), which are two important categories of non-financial measurement. In addition, the requirement that there should be six times as many non-financial measures as financial measures indicate the credit that management has given to non-financial measurements. Furthermore, it does have a blend of outcome measures and driver measures, though not balanced.
However, this scorecard is neither balanced, nor a system, and its implementation has certain problems as well.
First, it should be balanced between result measurement and driver measurement. Most of the items listed in Exhibit 3 are outcome measures (revenue, revenue growth, profit, ROA, NP breakeven, NP peak revenue, yield and cost) and only a few driver measures.
Secondly, it should be a balance between financial and non-financial measures. six times as much non-financial measurements make the scorecard unbalanced, though this is not to say that managers are putting too much emphasis on non-financial aspects as there is a difference between what they are saying and what they are really doing.
Thirdly, it is all internal measures but they ignored external factors, such as customer satisfaction. However, a purely internal view of the business is not enough as customer's needs and wants ultimately determine whether the products have a market or not.
Fourth, there lacks interlinks between the individual items. As it is condensed into an one-page report, it is unlikely that driver measures and outcome measures are matched by cause-and-effect relationships, nor is it likely that managers are expected to derive root causes of problems resulting inefficiency. It should from a laundry list of measures into a tool to translate strategy into action.
Fifth, in the implementation of the scorecard, their emphasis are not balanced. Lower-level management scorecards typically placed less emphasis on financial measures than on non-financial measures.
Lastly, they should be equally emphasized and they should be a tool to put mission and vision of the company into tangible objectives and measures, while I don't reckon the scorecard in place could achieve that.
Additional information that would be helpful for the scorecard would be:
indicators to reflect customer satisfaction:
Number of refund, reject or cancellation of orders
Complaints number
New customer number
Lost customer number
Learning and growth:
market share growth
reference
Dear team members, please pay attention that all references used for our assignment need to be added into this post.
Robert S. Kaplan, David P. Norton, The Balanced Scorecard: Translating strategy into action, 1996, Harvard Business School Press, United States
Robert N. Anthony, John Dearden, and Richard F. Vancil, Management Control Systems: Cases and Readings, 1965, Richard D Irwin INC, U.S
Robert S. Kaplan, David P. Norton, The Balanced Scorecard: Translating strategy into action, 1996, Harvard Business School Press, United States
Robert N. Anthony, John Dearden, and Richard F. Vancil, Management Control Systems: Cases and Readings, 1965, Richard D Irwin INC, U.S
Friday, May 1, 2009
our assignment
Dear team members,
This is our place of posting the summaries. Hope that you enjoy this blog.
As you might be thinking, we are indeed running a little bit behind the schedule. To get a fairly good mark for everyone, I hope we can speed up the progress. Here is how this works. As everyone have the access to this blog as an author, please post your summary or any comments towards other people's work, if any, on this blog. If it is not working, I am afraid we will have to meet up and do things together, which will be quite time consuming.
Here is the motified time schedule.
8th May: Everyone have their thoughts posted.
10th May: Meet up to finalise our analysis as a group and assign people to different part in presentation
12th May: Meet up to integrate the powerpoint slide from each member
13th May: Rehearsal day (It might be broken into several period as some team members may have classes, therefore a whole day of commitment in library would be required)
14th May: presentation
About the dressing, there is no specific requirements mentioned by the teacher. Therefore, I will just recommend a semi formal dressing up without any compulsary requirements. It will just look good and professional if we do so, which will benefit our score.
About work commitment, it will depend on the postings on this blog as well as attendance of our meetings. If anyone is not commiting, he/she might receive a "discounted" score compared to other people, just making it fair for everyone.
At the very last, looking forward to seeing all your sparkling and brilliant thoughts contributing to our team. Good luck.
Sharon
This is our place of posting the summaries. Hope that you enjoy this blog.
As you might be thinking, we are indeed running a little bit behind the schedule. To get a fairly good mark for everyone, I hope we can speed up the progress. Here is how this works. As everyone have the access to this blog as an author, please post your summary or any comments towards other people's work, if any, on this blog. If it is not working, I am afraid we will have to meet up and do things together, which will be quite time consuming.
Here is the motified time schedule.
8th May: Everyone have their thoughts posted.
10th May: Meet up to finalise our analysis as a group and assign people to different part in presentation
12th May: Meet up to integrate the powerpoint slide from each member
13th May: Rehearsal day (It might be broken into several period as some team members may have classes, therefore a whole day of commitment in library would be required)
14th May: presentation
About the dressing, there is no specific requirements mentioned by the teacher. Therefore, I will just recommend a semi formal dressing up without any compulsary requirements. It will just look good and professional if we do so, which will benefit our score.
About work commitment, it will depend on the postings on this blog as well as attendance of our meetings. If anyone is not commiting, he/she might receive a "discounted" score compared to other people, just making it fair for everyone.
At the very last, looking forward to seeing all your sparkling and brilliant thoughts contributing to our team. Good luck.
Sharon
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